Growth in the MRO industry has been challenged by lower than expected shop visits for much of this year, says Canaccord Genuity analyst Ken Herbert in a research note.
The slower growth can be attributed to airlines deferring maintenance and the improved performance of new powerplants, says Herbert. Maintenance and parts sales are expected to improve in 2014 but will not bounce back significantly, he notes.
Growth of spare parts sales has been surprisingly slower than expected this year when considering the generally strong passenger traffic market, says Herbert.
In addition to the above-mentioned factors, the spares market has also been affected by de-stocking of parts inventories, new aircraft types entering the market more slowly than anticipated and the increased amount of used serviceable material (USM) entering the aftermarket that can be restored and provide an alternative to purchasing new parts.
“Many OEMs have been forced to reduce their forecast for spare parts sales at least once or twice during the year, with the emergence of the USM market most often cited as the source of underperformance,” says Herbert in the research note.
This disconnect between passenger traffic and spares sales is expected to continue next year, but the impact will be less pronounced, says Herbert. Canaccord Genuity expects spare parts sales to rise into mid-to high-single digits.
The world's market for used serviceable material is sized at $3 billion, says Herbert. He estimates that more than 90% of material for older engines such as the General Electric CF6-80C2, the CFM International CFM56-3B and the Pratt & Whitney JT8D falls into this category, but notes that new narrowbody engines will begin to see more of this material available as well.
Providing used serviceable material in repairs is not a new concept for OEMs like Pratt & Whitney and GE, which have been sourcing it for the aftermarket for years. However, these companies have recently made notable plays to source and control the material.
Last year, Pratt & Whitney partnered with material sales and leasing firm TES Aviation Group to procure PW4000-100 engine material to use in repairs at its Eagle Services Asia engine overhaul facility. The engines had powered recently retired Airbus A330 models.
GE has extended its TRUEngine quality designation to life-limited parts to ensure that the individual components include only material approved by the OEM. The manufacturer has provided this label for full engines since 2008, but is extending it to the life-limited parts to ensure that engines repaired with serviceable material stay in an OEM-approved configuration as more of this material hits the market.
Airlines are also investing less in narrowbody airframe and engine maintenance due to more reliable engines and shorter life expectancy of the airframes, Herbert says. They are also getting better at managing inventory and deferring maintenance more often, he adds.
“We are already hearing concerns that the airlines may spend less than expected on the initial bow wave of shop visits for the narrowbody engines we expect to see materialise in 2014 if their expectations for usage of the engines are going down,” he says.